The financial environment facing charities has become significantly more demanding over the past few years.

Rising costs, shifting interest rates and changes to deposit protection all have practical implications for how charities manage their reserves and banking arrangements.

This was something that was raised by CAF Bank at its recent talk at the ICAEW’s annual charity conference for 2026, which more broadly explored how banking can support a charity’s mission.

The cost pressure is real

Inflation has had a compounding effect on charity budgets. What cost £100 in 2020 now costs over £128 and that gap is felt across everything from staffing to supplies.

The increase in employer National Insurance contributions has added an estimated £1.4 billion in costs across the charity sector, while the 6.7 per cent rise in the National Living Wage, though welcome for staff, adds further pressure to payroll budgets.

At the same time, 82 per cent of charities have reported an increase in demand for their services.

The combination of higher costs and greater need makes sound financial management more important than ever.

Changes to deposit protection

The Financial Services Compensation Scheme (FSCS) deposit protection limit has risen from £85,000 to £120,000.

This means charities can now hold more funds with a single institution before needing to spread deposits across multiple providers.

That said, spreading protection across several banking relationships remains sound practice for charities with larger reserves.

Your banking arrangements should reflect the size of your balances and your board’s appetite for risk.

Interest rates and investment income

The base rate currently sits at 3.75 per cent, but forecasts suggest a further reduction to around 3.25 per cent in the coming months, subject to improvements in the rate of inflation.

For charities that have benefited from improved returns on cash deposits in recent years, this will mean a gradual reduction in investment income and so boards should factor this into their financial planning and reserves policies.

To access the higher rates available on deposit accounts, charities generally need to be able to invest a minimum of £150,000.

For those with reserves at or above this level, it is worth reviewing current arrangements to ensure you are making the most of what is available and have diversified investments to prevent sudden shocks in any one area.

Adapting to how people give

Donor behaviour continues to change. There has been a clear generational shift towards online giving and deposit platforms, which many charities have not yet adapted their fundraising to.

Unless you have considered this shift, you banking infrastructure could mean you risk missing out on donations that might otherwise have been made.

Reviewing how you receive and process donations is a practical step that can make a real difference to income over time.

There are many new and innovative payment platforms out there that provide flexibility to you and your supporters.

Need guidance on your banking?

If you would like to discuss your charity’s banking and reserves arrangements, or review your financial governance policies, please contact our experienced charity specialists.